Executive Summary / Key Takeaways

• Ascend Wellness Holdings (AAWH) is a vertically integrated multi-state operator strategically focused on enhancing profitability and ensuring sustainable growth through disciplined cost management, targeted market densification, and a customer-centric consumer packaged goods (CPG) approach.
• Despite a modest revenue decline to $124.7 million in Q3 2025, the company demonstrated significant operational improvements, achieving an adjusted gross margin of 46.4% and an adjusted EBITDA margin of 24.9%, driven by efficiency gains and an optimized product mix.
• AAWH is actively expanding its retail footprint, aiming for 60 total locations by year-end 2026, and has launched a fully integrated digital e-commerce platform featuring AI-driven personalization and a tiered loyalty program to deepen customer engagement.
• The company maintains a robust financial position with $87.3 million in cash as of Q3 2025 and no major debt maturities until 2029. Q4 2025 guidance projects stable to slightly lower revenue but anticipates adjusted EBITDA margins exceeding 23% and stronger cash flow generation.
• Operating in a highly competitive and price-compressed cannabis market, AAWH differentiates itself through prime retail locations, a refreshed brand portfolio, and a disciplined approach to pricing, opting to prioritize profitability over aggressive, low-margin sales tactics.

A Vertically Integrated Strategy in a Maturing Cannabis Market

Ascend Wellness Holdings, Inc. (AAWH), established in 2018, operates as a vertically integrated multi-state operator within the U.S. cannabis industry, with a strategic presence across Illinois, Maryland, Massachusetts, Michigan, New Jersey, Ohio, and Pennsylvania. The company's core mission is to improve lives through cannabis by providing safe, reliable, and high-quality consumer packaged goods sold through its own retail dispensaries and to third-party licensed stores.

The broader cannabis market is undergoing a significant transformation, with consumer preferences shifting notably. Recent research from the 2025 National Cannabis Study by MRI Simmons indicates that 61% of U.S. adults view cannabis as a healthier alternative to alcohol, a figure that rises to 87% among recent users. This trend is further supported by a decade-long decline in adult alcohol consumption alongside steady growth in cannabis use, particularly among younger demographics aged 21 to 25. This monumental shift underscores cannabis's position as one of the fastest-growing categories in the CPG sector, rapidly catching up to established consumer staples like alcohol. According to Flowhub, the regulated U.S. cannabis market expanded over 9% in 2024, surpassing $31 billion, with an anticipated 12% growth in 2025. Daily cannabis users now exceed daily alcohol users, highlighting a profound change in consumer behavior.

Despite this robust demand, the industry faces persistent challenges, including intensified competition, ongoing sector-wide price compression, and a complex federal regulatory environment marked by the illegality of cannabis under federal law and the uncertainty surrounding enforcement. AAWH's overarching strategy is grounded in three core pillars: profitability, sustainability, and densification, designed to navigate these market dynamics and capitalize on long-term growth opportunities.

Operational Evolution and Technological Advancement

AAWH's journey began with its establishment in 2018, followed by its initial public offering in May 2021 and significant debt financing in August 2021 to fuel expansion. Key strategic acquisitions, such as Ohio Patient Access LLC (OPA) in 2022, further solidified its market presence. A pivotal shift occurred in 2024 under new management, emphasizing disciplined cost management, market densification, and a customer-centric approach. This included a substantial debt refinancing in July 2024 and the initiation of a share buyback program.

The company's operational footprint currently includes 46 open and operating retail locations, with 8 being partner locations, and seven manufacturing facilities boasting 258,000 square feet of total canopy as of September 30, 2025. A critical differentiator for AAWH lies in its strategic investment in technology and innovation to drive efficiency and enhance customer experience. The company is actively implementing network-wide automation across flower packing, vape filling, edibles, and pre-roll production. This automation rollout is on track for completion by year-end 2025 and is already "optimizing labor, boosting throughput and improving efficiency across our production facilities". These initiatives are "delivering measurable results" in operational performance.

In Q3 2025, AAWH launched a fully integrated digital e-commerce platform, a significant technological leap. This platform incorporates AI-driven personalization, a redesigned mobile application, and Ascend Pay, a secure cashless payment solution. Since its July launch, Ascend Pay transactions have notably increased from 2.7% to 6.7% of total sales by the end of October. Complementing this, the "Ascenders Club" loyalty program, featuring four tiers, has garnered over 64,000 new accounts. These technological advancements are crucial for AAWH's competitive moat, contributing to enhanced customer engagement, improved retention, increased transactional throughput, and greater operational efficiency, which in turn scales production of high-demand branded products and reduces the cost of goods sold. This technological roadmap is foundational to AAWH's long-term value creation and market positioning.

Financial Performance: Margin Expansion Amidst Revenue Pressures

AAWH's financial performance in Q3 2025 reflects a strategic pivot towards profitability and efficiency, even as the top line faced industry headwinds. Net revenue for Q3 2025 stood at $124.7 million, marking a modest 2% sequential decline and a 12% decrease year-over-year. This revenue softness was "primarily driven by declines across our legacy business resulting from increased competition and pricing pressure in most of our markets". Retail sales, at $83.8 million, saw a 3% sequential decline, attributed "almost equally by declines in the average basket size as well as the transaction volume, mainly in our Illinois and New Jersey markets". Wholesale sales remained flat quarter-over-quarter at $41 million, though the "sales mix improved with finished goods making up a larger portion of the B2B sales channel".

Despite these revenue pressures, AAWH demonstrated significant improvements in profitability. Gross profit for Q3 2025 reached $43.6 million, translating to a gross margin of 35%, a notable increase from 30.9% in Q3 2024. This expansion was a direct result of "improved realization and better production output across certain cultivation facilities, and a benefit from a higher volume of Company-produced products sold through our retail stores". Adjusted gross profit for the quarter was $57.8 million, a 4.6% sequential increase, with the adjusted gross margin improving by 300 basis points to 46.4%. The operating loss narrowed to $1.325 million in Q3 2025 from $2.417 million in Q3 2024, "primarily resulting from improved margins and reduced general and administrative expenses". Adjusted EBITDA saw an 8.9% sequential increase to $31.1 million, and the adjusted EBITDA margin expanded to 24.9%, a 250-basis point improvement quarter-over-quarter. These improvements underscore the effectiveness of the company's disciplined cost management, which has already eliminated "well over $30 million in annual expenses ahead of schedule".

For the nine months ended September 30, 2025, net revenue was $380.035 million, an 11% decrease year-over-year. The net loss for the period was $69.490 million. Operating cash flow for the nine months was $21.737 million.

The company's liquidity remains strong, with $87.272 million in cash and cash equivalents as of September 30, 2025. Management believes this cash position, coupled with positive operating cash flow, has "alleviated" substantial doubt about its ability to continue as a going concern for at least one year.

Strategic Growth and Brand Innovation

AAWH's strategic initiatives are designed to drive future growth and solidify its market position. The company is actively pursuing market densification, aiming to expand its retail footprint to 60 total locations (including partner stores) within the next 12 months, with 13 additional stores currently in the pipeline. New Jersey is a key focus, with the first social equity partner store in Little Falls expected to open by the end of November 2025, and five more partnerships under development. Ohio continues to be an outperforming market and a strong growth driver, with the recent introduction of pre-rolls (Ozone Reserve and Simply Herb) being well-received. The company exercised its option to acquire OPA in September 2025, with the transaction closing in October 2025.

The CPG strategy involves reallocating resources towards higher-value branded products, channeling wholesale biomass into finished goods with greater margin potential. AAWH has launched over 420 SKUs year-to-date in 2025 and is on pace to introduce nearly 550 by year-end. Key brands include:

• Effin': Expanded into the vape category with five effects-based 1-gram cartridges and five new effects-based gummy SKUs, positioning it as the #1 sleep SKU in Illinois and New Jersey.
• High Wired: An infused flower brand gaining significant traction, driving an 82% market share increase in infused products and contributing to a 4% market share gain in the pre-roll category across Illinois, Massachusetts, and New Jersey. It ranks as the #2 infused brand by sales and units across these states combined.
• Simply Herb: Maintains its position as the #1 flower brand in Massachusetts and saw an 8.4% market share increase in New Jersey.
• Ozone: The #1 overall brand in units sold across Illinois, Massachusetts, and New Jersey combined, leading in flower and pre-roll unit sales in New Jersey. Ozone Reserve is fueling growth in the concentrates category, gaining over 4% market share.
• Honor Roll: A new premium pre-roll collection, set to debut in Illinois in December 2025, followed by Massachusetts and New Jersey in early 2026.

Competitive Landscape and Risk Assessment

AAWH operates as a mid-tier player in the highly competitive U.S. cannabis market. Its competitive advantages stem from its strategically located retail footprint, which consistently delivers an excellent customer experience, reflected in a Net Promoter Score (NPS) exceeding 70. The company's disciplined approach to pricing and its refreshed brand portfolio also serve as key differentiators against rivals.

Compared to larger multi-state operators like Curaleaf Holdings, Inc. (CURLF), Green Thumb Industries (GTBIF), and Tilray Brands, Inc. (TLRY), AAWH's strategy is more regionally concentrated. While Curaleaf boasts a larger retail network and aggressive expansion, AAWH's localized focus may yield greater operational efficiency in its specific markets. Green Thumb Industries demonstrates consistent revenue growth and strong profitability, often outperforming AAWH in overall financial health. Tilray Brands, with its global and diversified approach, presents a different competitive dynamic, where AAWH's U.S.-centric retail strategy offers distinct advantages in domestic market positioning. AAWH's financial performance, including growth rates and profitability, generally lags behind these larger competitors, primarily due to its comparatively smaller scale.

The company faces several vulnerabilities, including its smaller scale relative to industry giants, which can lead to higher costs and reduced profitability, making it susceptible to aggressive price competition. Regulatory dependencies, particularly the federal illegality of cannabis and the impact of IRC Section 280E, pose significant challenges. AAWH has an uncertain tax liability of $186.818 million related to IRC Section 280E as of September 30, 2025. Regulatory delays for new store openings also impact revenue contribution. The MedMen NY (MMNFF) Litigation, while resulting in a default judgment of $10.3 million in AAWH's favor, faces collection uncertainty due to MedMen's bankruptcy. Management acknowledges "irrational players" in the market engaging in deep discounting, but AAWH prioritizes profitability over chasing low-value sales. A potential positive catalyst could be the closing of the "hemp loophole," which could significantly expand the regulated market by $20 billion to $30 billion.

Outlook and Investment Thesis

Looking ahead, AAWH's management anticipates Q4 2025 revenue to remain "relatively stable with projected revenue slightly down from Q3," influenced by the "promotion-heavy holiday period ahead and continued industry headwinds". Despite this, the adjusted EBITDA margin is "expected to exceed 23%", with "much stronger cash flow generation" projected for Q4 due to the timing of biannual interest payments. For 2025, capital expenditures are expected to range from $30 million to $35 million, with approximately half allocated to new store openings and the remainder for facility upgrades.

The long-term investment thesis for AAWH centers on its ability to leverage its disciplined operational strategy and technological investments to drive sustainable profitability and market share gains. The company's commitment to market densification, brand innovation, and a superior customer experience, supported by its robust balance sheet and lack of near-term debt maturities, positions it to capitalize on the evolving cannabis landscape. As the densification strategy "continues to take hold," AAWH expects to "grow revenue" in 2026 and achieve operating leverage.

Conclusion

Ascend Wellness Holdings is executing a clear and disciplined strategy to thrive in the dynamic U.S. cannabis market. By prioritizing profitability through stringent cost controls and strategic investments in automation and digital platforms, the company is demonstrating resilience against industry-wide price compression and intense competition. Its focus on market densification and a customer-centric CPG approach, coupled with a strong brand portfolio and innovative product launches, is designed to capture increasing consumer demand.

While regulatory uncertainties and competitive pressures remain notable risks, AAWH's robust financial health, prudent capital allocation, and commitment to operational excellence provide a solid foundation. The company's ability to expand margins, grow its retail footprint, and enhance the customer journey through technology will be critical determinants of its long-term success. Investors should watch for continued execution on its densification targets, further margin expansion, and the impact of its evolving brand strategy as AAWH aims to solidify its position as a leading multi-state operator.